- 2 - discussions, I believe such information to be true. All amounts are in Canadian dollars unless otherwise indicated. I. Introduction...

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2 - 2 - discussions, I believe such information to be true. All amounts are in Canadian dollars unless otherwise indicated. 4. This affidavit contains information under the following headings: I. Introduction Overview... 3 (A) Defined Terms... 4 (B) The Walter Canada Group... 5 (C) The Walter U.K. Group... 6 (D) The Walter U.S. Group... 7 (E) The Western Acquisition Ill. The Walter Group's Business - The Coal Industry IV. The Walter Canada Group - Management and Mines (A) Brule Mine (B) Willow Creek Mine (C) Wolverine (Perry Creek) Mine (D) Additional Mine Sites (E) Belcourt Saxon Coal Limited Partnership V. The Walter Canada Group - Employees (A) Brule Employees (B) Willow Creek Employees (C) Wolverine Employees (D) Existing and Potential Employee and Union Matters VI. The Real Property and Environmental and Regulatory Matters VII. The Walter Canada Group - Other Key Contracts VIII. The Financial Position of the Walter Group (A) Financial Position of the Walter Non-U.S. Group (B) Summary of Walter Canada Assets, Liabilities and Revenue (C) Cash Management System (D) Secured Debt & Credit Facility (E) The Hybrid Debt Structure IX. Impact of the Chapter 11 Cases on the Walter Canada Group X. The Need for Relief under the CCAA and Relief Sought (A) Stay of Proceedings and Partnerships (B) Payments During this CCAA Proceeding in Respect of Pre-Filing Obligations (C) Management Services Provided by Walter Energy U.S (D) Proposed Monitor (E) Charges and other Protections (F) Cash Flow Forecast... 34

3 - 3 - XI. Conclusion II. OVERVIEW 5. The Walter Canada Group consists of producers and exporters of metallurgical coal for the global steel industry. The coal industry has experienced a significant and prolonged downturn. As a result, and as more fully described herein, the operations of the Walter Canada Group were idled, their mines were placed in care and maintenance and efforts were made to contain costs in hopes that the price of coal would rebound. In addition, efforts have been made to find an out-of-court resolution of the Walter Canada Group's financial difficulties. The Walter Canada Group has exhausted its efforts to reach an outof-court solution to its financial difficulties and faces a looming liquidity crisis. 6. Walter Energy Canada is a wholly owned subsidiary of Walter Energy U.S. Walter Energy U.S. and a number of its U.S. subsidiaries filed voluntary petitions for relief pursuant to Chapter 11 of the U.S. Bankruptcy Code (the "Chapter 11 Cases") with the United States Bankruptcy Court in Birmingham, Alabama (the "U.S. Court") on July 15, 2015 (the "U.S. Petition Date"). As discussed in more detail below, developments in the Chapter 11 Cases have resulted in the approval of bid procedures and the approval of a stalking horse asset purchase agreement that will (if it is the successful bid) see the majority of the assets of Walter Energy U.S. and the assets of certain of its U.S. subsidiaries sold to a new company pursuant to a credit bid in favour of certain lenders to the Walter U.S. Group. The equity interests in the members of the Walter Canada Group and the assets held by the members of the Walter Canada Group are not part of the purchased assets under the credit bid. As a result of the developments in the Chapter 11 Cases and the looming liquidity crisis faced by the Walter Canada Group, it has become necessary for the Petitioners to seek relief pursuant to the CCAA for all of the members of the Walter Canada Group so that they can develop and implement an independent sales process to maximize value for their stakeholders in consultation with various governmental authorities. 7. The Walter Canada Group is facing the following challenges: (a) costs in excess of $16 million per year associated with maintaining the Walter Canada Group's mining operations in an idled state, with limited offsetting revenue; (b) aggregate long-term liabilities in respect of the Canada Revolver (defined below) associated with undrawn letters of credit of approximately of $22.6 million with associated annual fees and interest expenses; (c) claims of employees and other creditors that have or will crystallize in the near term if certain members of the Walter Canada Group do not recommence mining operations, including an employee claim estimated at approximately $11.3 million that will allegedly become due if unionized employees at the Wolverine Mine do not return to work before April 2016;

4 -4- (d) due and accruing due B.C. mineral tax liabilities, including liabilities in respect of a payment plan entered into by Walter Energy Canada and the B.C. Ministry of Finance and potential additional liabilities relating to years that have not yet been assessed; (e) loss of the financial support normally provided by Walter Energy U.S. as a consequence of developments in the Chapter 11 Cases; and (f) pending loss of essential managerial and back office support that will occur upon the consummation of a sale of a significant portion of the assets of Walter Energy U.S. and certain of its U.S. subsidiaries. 8. The Walter Canada Group has a finite amount of liquidity available to address the foregoing challenges and, as discussed in more detail below, limited access to further sources of funding in the near term. These challenges, when combined with the projected liquidity shortfall and the current market environment for metallurgical coal and steel, make it necessary for the Walter Canada Group to take immediate steps to attempt to stabilize their affairs and seek a going concern outcome in consultation with the applicable governmental authorities while the members of the Walter Canada Group still have sufficient resources available. If a going concern solution cannot be found, the Walter Canada Group will need to implement a prudent and responsible wind down of its remaining operations. 9. I made a declaration dated July 15, 2015 in support of the first day motions in the Chapter 11 Cases, which is attached as Exhibit "B" to this affidavit (my "First Day Declaration"). My First Day Declaration provides a comprehensive overview of the Walter Group's background, its business and the events leading up to the commencement of the Chapter 11 Cases. In this affidavit, I provide a high-level overview of the Walter Group's background and relevant details regarding the Chapter 11 Cases, focusing on the operations of the Walter Canada Group. (A) Defined Terms 10. This affidavit will use the following defined terms, which are consistent with my First Day Declaration. For the sake of clarity, if a defined term uses the word "Energy", it is a discrete corporate entity. If a defined term uses the word "Group", it represents a collection of corporate entities: (a) "Walter Energy U.S." is Walter Energy, Inc., a company incorporated under the laws of Delaware and headquartered in Birmingham, Alabama, and the parent company of all the other members of the Walter Group. Walter Energy U.S. directly or indirectly has an interest in all of the members of the Walter Group. (b) "Walter Group" includes all companies, partnerships or other corporate structures directly or indirectly affiliated with Walter Energy U.S.

5 - 5 - (c) "Walter U.S. Group" and "Walter Non-U.S. Group": The Walter Group operates its business in two distinct segments: (i) U.S. Operations (the "Walter U.S. Group"), and (ii) Canadian and U.K. Operations (the "Walter Non-U.S. Group"). As discussed in more detail below, Walter Energy U.S., a public company, reports its financial results by segment and does not provide financial reporting for the Walter Canada Group or the Walter U.K. Group independently. (d) "Walter Canada Group" and "Walter U.K. Group": The Walter Non-U.S. Group can be further broken down into Canadian and U.K. operations (the "Walter Canada Group" and "Walter U.K. Group", respectively). The Walter Canada Group consists of all the entities listed in Exhibit "A", including under the headings "Petitioners" and "Partnerships". The members of the Walter U.K. Group are indirect subsidiaries of Walter Energy Canada. (e) "Walter Energy Canada" is Walter Energy Canada Holdings, Inc., a company incorporated under the laws of B.C. Walter Energy Canada is the parent company for the Walter Non-U.S. Group. Walter Energy Canada is wholly owned by Walter Energy U.S. (I) "U.S. Petitioners" includes substantially all members of the Walter U.S. Group. Attached hereto as Exhibit "C" is a list of the members of the Walter U.S. Group that filed for and were granted Chapter 11 protection. (BJ The Walter Canada Group 11. Walter Energy Canada is a holding company and the general partner of Walter Canadian Coal Partnership. It was incorporated on March 9, All of the issued and outstanding shares of Walter Energy Canada are held by Walter Energy U.S. Walter Energy U.S. formerly traded on the NYSE under the symbol "WL T", but was delisted due to failure to meet certain continued listing conditions. 12. The principal operating entity of the Walter Canada Group is Walter Canadian Coal Partnership, a B.C. general partnership. Its partners are Walter Energy Canada and Walter Canadian Coal ULC, a B.C. unlimited liability company formed on June 28, All of the issued and outstanding shares of Walter Canadian Coal ULC are held by Walter Energy Canada. 13. The principal assets of the Walter Canada Group are the Brule, Willow Creek and Wolverine Mines, located in northeast B.C., and the Walter Energy Canada Group's 50% interest in the Belcourt Saxon Coal Limited Partnership. As the organizational chart attached hereto as Exhibit "D" indicates, Walter Canadian Coal Partnership is a partner of each of the three B.C. partnerships that operate the Canadian mines: Wolverine Coal Partnership, Brule Coal Partnership and Willow Creek Coal Partnership. Each of the partnerships has a separate B.C. unlimited liability company as its other partner. The mines will be discussed in more detail below. The following is a simplified version of the organizational chart at Exhibit "D":

6 - 6 - Walter Energy, Inc. I Walter Energy Canada Holdings, Inc. (BC) Walter Canadian Coal ULC (BC) I Walter Canadian Coal Partnership (BC) I Wolverine Coal ULC (BC) Brule Coal ULC (BC) Cambrian Energybuild Holdings ULC (BC) Willow Creek Coal ULC (BC) I Willow Creek Coal Partnership (BC) Wolverine Coal Brule Coal Partnership Partnership Pine Valley Coal (BC) (BC) Ltd. (AB) I 15. British Columbia is the Walter Canada Group's chief place of business. (C) The Walter U.K. Group 16. The Walter Group also has U.K assets, which are held through a B.C. unlimited liability corporation, Cambrian Energybuild Holdings ULC ("Energybuild ULC"). The Walter U.K. Group's operations consist of an underground development mine located in South Wales that produces anthracite coal. 17. Energybuild ULC is wholly owned by Walter Canadian Coal Partnership, and is a holding company that holds shares of a U.K. holding company that, in turn, owns shares of the U.K. companies that operate the mine in South Wales and perform other related activities.

7 The Walter U.K. Group's primary activity has been the development and expansion of the Aberpergym underground coal mine located at Glynneath in the Neath Valley. In the fall of 2011, the Walter UK Group stopped continuous mine development operations to focus on completing a new drift opening. The Walter U.K. Group completed the upper section of the drift during 2012, but due to challenges related to an oversupply of coal and decreased demand, the Walter U.K. Group took steps to reduce development spending in this UK mine until market conditions improve. This has slowed the development of the drift opening. 19. The Walter UK Group idled the U.K. mines in 2015 to further manage its liquidity. Towards that end, on or about June 5, 2015, the Walter UK Group commenced a 30-day consultation period with the National Union of Mineworkers South Wales in connection with the Walter U.K. Group's plans to idle the UK mines. On or about July 4, 2015, the majority of the Walter U.K. Group's employees were rendered redundant, and the mines now retain only those employees necessary to keep the premises in safe, idling condition. Before July 4, 2015, the Walter U.K. Group employed approximately 70 full-time employees, including management and personnel engaged in underground mining activities. Approximately 1 O employees were retained to sell remaining coal inventory and to manage security and environmental matters. Development of the U.K. mine can begin relatively quickly if market conditions improve. 20. Prior to the commencement of the Chapter 11 Cases, the Walter U.K. Group generally funded its operations through sales of coal and intercompany loans received from Walter Energy U.S. The Walter U.K. Group owes approximately 4 million to the Walter U.S. Group in respect of borrowings made between April 2011 and March In June 2015, the Walter Canada Group advanced an additional US$3 million to the Walter UK Group to address its funding needs. It is anticipated that the Walter UK Group will not need any additional funding in 2015 and is projected to have sufficient funding to operate in its current idled state until the end of the third quarter of At this time, it is not anticipated that the members of the Walter UK Group will be petitioners in these CCAA proceedings. The members of the Walter U.K. Group are not debtors in the Chapter 11 Cases. (D) The Walter U.S. Group 22. As discussed in more detail in my First Day Declaration, the Walter U.S. Group has operations in Alabama and West Virginia. As of the U.S. Petition Date, the U.S. Petitioners had the following obligations (excluding accrued and unpaid interest):

8 -8- Facility Outstanding Indebtedness 2011 Credit Agreement Term B Loan: $978.2 million US Revolver: $ 76.9million % Senior Secured First Lien Notes due US$970.0 million October 15, 2019 ("First Lien Notes") 11.0% / 12% Senior Secured Second Lien PIK US$360.5 million Toggle Notes due % Senior Notes due 2020 US$388.0 million 8.50% Senior Notes due 2021 US$383.0 million Total Funded Debt: US$3.146 billion 23. The Walter U.S. Group has also guaranteed the US$150 million multi-currency revolving credit facility available to Walter Energy Canada under the 2011 Credit Agreement (the "Canadian Revolver"). No amounts are drawn on the Canadian Revolver, but the Walter U.S. Group has guaranteed Walter Energy Canada's obligations in respect of approximately $22.6 million of undrawn letters of credit issued under the 2011 Credit Agreement that are discussed in more detail below. 24. The Walter Canada Group does not have any obligations in respect of the US$3.146 billion of outstanding indebtedness described above. The Walter Canada Group only has limited obligations in relation to certain letters of credit issued for the benefit of the Walter Canada Group under the 2011 Credit Agreement. These obligations are described in more detail below. 25. Prior to the commencement of the Chapter 11 Cases, the Walter Group engaged in extensive negotiations with a committee of lenders under the 2011 Credit Agreement and holders of the First Lien Notes (the "Steering Committee") and their advisors to address the challenges faced by the Walter Group, including those faced by the Walter Canada Group. As a result, the U.S. Petitioners entered into a Restructuring Support Agreement ("RSA") with the Steering Committee. The RSA contemplated a consensual debt-to-equity conversion of Walter Energy U.S.'s prepetition first lien secured debt for substantially all of the reorganized Walter Group's common stock. As a result of developments in the Chapter 11 Cases, however, the RSA was terminated. The US Revolver is undrawn but a number of outstanding letters of credit have been issued.

9 The Steering Committee and the U.S. Petitioners then engaged in further negotiations which resulted in the granting of the amended final order (A) authorizing postpetition use of cash collateral, (B) granting adequate protection to the prepetition secured parties and (C) granting related relief in the Chapter 11 Cases on S1Jptember 28, 2015 (the "Cash Collateral Order"). A copy of the Cash Collateral Order is attached as Exhibit "E" to this affidavit. The Cash Collateral Order required the U.S. Petitioners to commence a sales process for certain assets held by the U.S. Petitioners and has certain more direct consequences for the Walter Canada Group, discussed below. 27. In accordance with the Cash Collateral Order, the U.S. Petitioners have begun to implement a sales process in the Chapter 11 Cases. On November 5, 2015 Walter Energy U.S. announced that it had entered into a stalking horse asset purchase agreement (the "U.S. APA") with a newly formed entity capitalized and owned by the First Lien Lenders ("Coal Acquisition LLC"), pursuant to which Coal Acquisition LLC became the stalking horse bidder in a bid to acquire substantially all of the Walter U.S. Group's Alabama assets. On November 25, 2015, the U.S. APA and related bid procedures were approved by the U.S. Court. 28. Pursuant to the bid procedures, a court-supervised auction process under section 363 of the U.S. Bankruptcy Code is scheduled to be held on January 5, Accordingly, the U.S. APA is subject to higher or otherwise better offers, among other conditions. If the U.S. APA is the successful bid pursuant to the sales process, it is anticipated that the transaction will close in mid to late February. 29. The APA does not include all the assets held by the Walter U.S. Group, such as the shares of Walter Energy Canada, nor does it include the assets held by members of the Walter Non-U.S. Group. PJT Partners Inc. has been canvasing the market in an attempt to find a purchaser for the assets of the Walter Canada Group. Following discussions with applicable government authorities, the Walter Canada Group anticipates that it will seek this Court's approval for further marketing efforts to be undertaken for the assets of the Walter Canada Group in these CCAA proceedings. 30. Once the sale contemplated by the U.S. APA is complete, the Walter U.S. Group will no longer be in a position to support the Walter Non-U.S. Group financially and it will no longer provide essential management services, unless other arrangements are made. These essential management services include accounting, procurement, environmental management, tax support, treasury functions, and legal advice. Currently, the Walter Canada Group pays approximately $1 million per month to the Walter U.S. Group for these essential management services, based on a historical overhead allocation methodology. Negotiations among the Walter Canada Group and the Walter U.S. Group are underway to address the provision of these services and the pricing of such services until the consummation of the transaction contemplated by the U.S. APA (assuming the U.S. APA is the successful bid).

10 (E) The Western Acquisition 31. On April 1, 2011, Walter Energy U.S. acquired Western Coal Corp. ("Western") and its subsidiaries. Walter Energy Canada was formed for the purpose of acquiring Western. Walter Energy Canada acquired all outstanding common shares of Western for US$3.3 billion 2 under an arrangement agreement approved by the B.C. Supreme Court pursuant to the B.C. Business Corporations Act (the "Western Acquisition"). Certain transactions in connection with the Western Acquisition, including share purchases, were completed and consideration was paid prior to April If these transactions are included, the total consideration paid in respect of the Western Acquisition was approximately US$3.7 billion. Before 2011, the Walter Group did not have any operations in Canada or the U.K. When the Western Acquisition closed, Walter Energy Canada acquired all direct and indirect subsidiaries of Western and their assets, including mines and mineral reserves in Canada, West Virginia and the U.K. 32. Concurrently, and in connection with entering into the arrangement agreement with Western, Walter Energy U.S., Western and Walter Energy Canada entered into a credit facility with Morgan Stanley Senior Funding, Inc., the Bank of Nova Scotia ("BNS") and the other lenders thereunder (the "Bank Lenders") pursuant to which, subject to the conditions set forth therein, the Bank Lenders committed to providing Walter Energy U.S. (the "U.S. Borrower"), Western and Walter Energy Canada (the "Canadian Borrowers" and, collectively with the U.S. Borrower, the "Borrowers") with US$2.725 billion of senior secured credit facilities, the proceeds of which were used to (i) fund the cash consideration for the Western Acquisition, (ii) pay certain fees and expenses in connection with the Western Acquisition, (iii) refinance all existing indebtedness of Walter Energy U.S. and Western and their respective subsidiaries, and (iv) provide ongoing working capital to Walter Energy U.S. and its subsidiaries (the "2011 Credit Agreement"). Due to its size, the 2011 Credit Agreement and the subsequent amendments are not attached to this Affidavit, but will be made available upon request. 33. As discussed in more detail below in the section titled "The Financial Position of the Walter Group", the Canadian Borrowers only have limited obligations in respect of the 2011 Credit Agreement. As discussed below, the majority of the funding Walter Energy Canada paid for the Western Acquisition was obtained under a hybrid debt transaction. 34. The Western Acquisition closed on April 1, 2011 with the following final consideration: (a) payment of US$2, 107,018,736.90, representing 67% of the total consideration for the transaction; and (b) 8,951,558 shares of Walter Energy U.S., valued at approximately US$1,224, 125,538, representing 33% of the total consideration for the transaction. 2 At the time of the Western Acquisition, the Canadian and U.S. dollars were trading near parity.

11 The Western Acquisition was a strategic initiative by Walter Energy U.S. to increase reserves available for future production and create a diverse geographical footprint with strategic access to highgrowth steel-producing countries in both the Atlantic and Pacific basins. 36. After the completion of the Western Acquisition, the Walter Group engaged in a series of internal restructurings to rationalize operations and to organize the Walter Group into geographical business segments, the Walter U.S. Group, the Walter Canada Group and the Walter U.K. Group. 1/1. THE WALTER GROUP'S BUSINESS- THE COAL INDUSTRY 37. The Walter Group is a leading producer and exporter of metallurgical coal for the global steel industry, with mines, mineral reserves and operations in the U.S., Canada and the U.K. There are three types of metallurgical coal: (i) hard coking coal, (ii) semi-soft coking coal, and (iii) pulverized coal injection ("PCI") coal. The Walter Canada Group's mines produce hard coking coal and PC! coal. 38. In recent years, the global market for metallurgical coal has sharply contracted. Metallurgical coal markets are influenced by the level of crude steel production, which in turn depends on global economic conditions. Recessionary forces in the global economy reduced global demand for metallurgical coal and resulted in a precipitous decline in its price. 39. The British Columbia Coal Industry Overviews for the years 2011 to 2014 (attached hereto as Exhibit "F") explain that, following a historic peak in 2011, prices of hard coking and PCI coal decreased as global inventories increased. The sharp decrease in price from 2011 to 2014 is demonstrated by the table below: BC premium hard US$220 per tonne US$175 per tonne US$155 per tonne US$121 per tonne coking coal PC! coal US$ per US$ per US$125 - $144 per US$107 per tonne tonne tonne tonne (All prices estimated West Coast Port Price.) 40. The benchmark price metallurgical coal has dropped dramatically from US$330 per tonne in the second quarter of 2011 to US$89 per tonne in the fourth quarter of According to Wood Mackenzie's Global Metallurgical Coal Short-term Outlook released in September 2015, attached as Exhibit "G" to this affidavit, metallurgical coal prices are expected to remain depressed throughout 2015, with a modest recovery expected in early 2016.

12 At current prices, even with the modest recovery Wood Mackenzie predicts in early 2016, the Walter Canada Group anticipates that metallurgical coal production will remain uneconomic for the immediately foreseeable future. 43. Over the last two years, the high cost of coal extraction in northeastern B.C., combined with low metallurgical coal prices and the near-term market outlook caused the Walter Group, including the Walter Canada Group, to focus on containing costs to preserve enterprise value and mitigate the impact of poor market conditions. This strategy included planned reductions in capital spending. 44. In B.C., reductions in capital spending have been achieved by way of idling mines or otherwise curtailing operations. Mining operations at the Walter Canada Group's three mines (Brule, Willow Creek and Wolverine) were curtailed or idled between April 2013 and June 2014 and placed in care and maintenance, all in an effort to reduce costs and minimize losses while the metallurgical coal market remained depressed. Steps have been taken to ensure that the mines can return to production quickly if market conditions warrant. Copies of the press releases announcing the idling of the mines are attached as Exhibit "H" to this Affidavit. 45. Idling of the mines has resulted in significant savings for the Walter Non-U.S. Group. Walter Energy U.S. reported a Walter Non-U.S. Group operating loss of US$183.2 million for the year ended December 31, For the three months ended September 30, 2015, Walter Energy U.S. reported a Walter Non-U.S. Group operating loss of US$2.974 billion. The operating results for the Walter Non-U.S. Group for the nine months ended September 30, 2015 include asset impairment charges of US$2.9 billion to write-down the carrying values of the Canadian and U.K. operations segment to fair value. In the absence of this write-down, the operating loss would have been approximately US$7 4 million, a significant improvement over the 2014 year that resulted from the idling of the Canadian and U.K. mining operations. 46. The suspension of mining operations was intended to be temporary, and the Walter Canada Group intended to resume operations once existing inventories had been depleted and metallurgical coal prices had recovered. However, the idling of the mines has been prolonged because metallurgical coal prices continue to worsen and there is significant global overcapacity. The Walter Canada Group continues to monitor developments such as the weakening Canadian dollar and declining diesel fuel prices to assess whether and when to resume mining operations. However, these developments are not sufficient at present to warrant a restarting of the Canadian mines. Given the recent developments in the Chapter 11 Cases, the Walter Canada Group does not have sufficient resources to wait and see whether the market for Canadian coal will improve. 47. To successfully restructure, the Walter Canada Group needs to survive the prolonged depressed coal prices with sufficient capital to restart operations. The most viable restructuring option available to the Walter Canada Group at the time of this Affidavit is a sale of the assets pursuant to the CCAA.

13 JV. THE WALTER CANADA GROUP- MANAGEMENT AND MINES 48. The Walter Group's financial statements report the Walter Non-U.S. Group on a consolidated basis; however, the Walter Canada Group and the Walter U.K. Group are operated separately and there is little overlap between the two corporate groups, other than the fact that the President of Walter Energy Canada is also the President of Energybuild Group Limited, the parent company of all of the U.K. members of the Walter Group. 49. The Canadian mining operations consist of three surface metallurgical coal mines in Northeast B.C.'s coalfields: (i) the Brule Mine, (ii) the Willow Creek Mine, and (iii) the Wolverine Mine, sometimes referred to as the Perry Creek Mine. The Brule and Willow Creek Mines are near Chetwynd, B.C.; the Wolverine Mine is near Tumbler Ridge, B.C. 50. As of December 31, 2014, the Walter Canada Group was estimated to have approximately million metric tonnes of recoverable metallurgical coal reserves including 91.3 million metric tonnes at potential future mine sites (including the Walter Canada Group's share of Belcourt Saxon's reserves). As discussed, all the Walter Canada Group mines were idled prior to December 31, 2014, so these estimates are generally unchanged. 51. The Canadian mines are located near existing infrastructure established for the Northeast B.C. coalfields, including rail and road networks that are available year round. Coal produced from the mines is shipped by rail to the Ridley Terminals in Prince Rupert. Active mineral extraction at each of the three mines has been suspended but existing coal inventory was being shipped to Prince Rupert in the third quarter of For the nine months ended September 30, 2015, a total of 634,000 metric tonnes of coal was sold by the Walter Non-U.S. Group. Only 100,000 metric tonnes was produced. Instead, existing inventory at the Brule and Willow Mine was shipped. 52. A more detailed description of the Canadian operations at each of the mines is set out below. (A) Brule Mine 53. Brule Coal Partnership ("Brule Partnership") operates the Brule Mine, which is located 28 miles south of Chetwynd, B.C. The Brule Mine is an open pit metallurgical coal mine that produces pulverized coal injection coal. PCI coal is generally sold at 15-20% discount to the price of hard coking coal. As of December 31, 2014, the Brule Mine had approximately 16.6 million metric tonnes of recoverable coal reserves. The Brule Mine is expected to have a life of at least 8 years (assuming the applicable permits are renewed or extended), which could be extended depending on how the mine is operated. 54. The Brule Mine does not have a processing plant or a rail load-out facility. Instead, coal from the Brule Mine is transported by truck to the Willow Creek Mine for processing and loading onto rail cars for shipment to Prince Rupert.

14 The dramatic drop in coal prices led the Walter Canada Group to idle the Brule Mine in June Since that time, the only operations at the Brule Mine were loading the remaining coal and hauling it to the Willow Creek Mine, maintaining the mine and mining equipment, and complying with environmental and other laws and regulations. The final haul of coal from the Brule Mine to Willow Creek occurred on or about April 28, Idling costs for both the Brule Mine and Willow Creek Mines are estimated to be in excess of $652,000 per month, with some seasonal variation. Idling costs consist of property taxes, expenses related to water and air sampling, reporting to the Ministry of Environment, surveying, geotechnical support, reclamation matters, other environmental monitoring, expenses related to the maintenance of the bioreactor (discussed below), maintenance of the mining machinery and equipment, loss control expenses and labour costs associated with the foregoing. Employment matters at the Brule Mine are described in greater detail below. 57. The Walter Canada Group has experienced some issues meeting the revised provincial water quality guidelines relating to selenium, nitrate and sulphate levels at the Brule Mine. Like many coal mines, the Brule Mine operations have resulted in increased levels of selenium (a natural occurring element) being released into the environment, largely as a result of rain falling on rock exposed through the mining process. 58. The selenium issues at the Brule Mine are more significant than at the Wolverine and Willow Creek Mines, in part because of differences in the local environment and dilution rates of the neighbouring creeks and rivers. The Walter Canada Group is working with the British Columbia Ministry of Environment to address selenium issues at Brule and various selenium management approaches have been considered. This includes, but is not limited to, a biochemical reactor which has been permitted and constructed, and is presently being tested (for the first time in a Northern Canadian mine). 59. The Walter Canada Group estimates that the cost of maintaining the bioreactor through to the end of the first quarter of 2016 will be less than US$150,000. If the bioreactor is successful in meeting its objectives, it is anticipated that two more bioreactors will be established and a third may be constructed. The cost to build each bioreactor is estimated at approximately US$1.0 million. Given the nature of the technology and the local environmental conditions, the Walter Canada Group will not know until August 2016 whether or to what extent the bioreactor assists in achieving the selenium management objectives. If the bioreactor, along with other selenium management steps, is unsuccessful in sufficiently meeting objectives, active treatment of the effluent may be required at some point. Active treatment would be considerably more expensive than the selenium management measures used to date.

15 (B) Willow Creek Mine 60. Willow Creek Coal Partnership operates the Willow Creek Mine, located 28 miles west of Chetwynd, B.C. It is an open pit metallurgical coal mine with a coal processing plant and a rail load-out facility. The Willow Creek Mine produces metallurgical coal comprised of an estimated one-third hard coking coal and two-thirds low-volatile PCI coal. As of December 31, 2014, the Willow Creek Mine had approximately 16.6 million metric tonnes of recoverable coal reserves. The Willow Creek Mine is currently expected to have an operating life of at least 10 years if running at full production. 61. In April 2013, the decision was made to curtail mining production at the Willow Creek Mine in response to declining coal prices and the excess inventory of PCI coal that had developed at the Brule Mine. The mining footprint was reduced from 110 thousand tonnes per month to thousand tonnes per month. 62. Coal prices continued to decline and Willow Creek mining activity was idled in May The coal processing plant remained in operation until late summer During this period, the Willow Creek plant was tasked with processing coal from the Brule Mine as well as processing a stockpile of midvolatile PCI coal that had accumulated at Willow Creek Mine. Processing at the Willow Creek plant includes crushing, sizing and washing coal to remove impurities. 63. Willow Creek completed its processing of the Brule coal and mid-volatile PCI coal in August At that time, the processing plant was idled and all employees engaged at the processing plant received notice of termination. The rail load-out facility remained in operation until the final shipment of coal from Willow Creek to Ridley Terminals occurred in October Willow Creek Mine is now fully idled. The only remaining activities at the Willow Creek Mine relate to security, environmental testing and maintenance of on-site facilities. 64. As mentioned above, idling costs for both the Willow Creek Mine and the Brule Mine are estimated to be in excess of $652,000 per month, with some seasonal variation. Idling costs consist of property taxes, expenses related to water and air sampling, reporting to the Ministry of Environment, surveying, geotechnical support, reclamation matters, other environmental monitoring, maintenance of the mining machinery and equipment, loss control expenses and labour costs associated with the foregoing. Employment matters at the Willow Creek Mine are described in greater detail below. (C) Wolverine (Perry Creek) Mine 65. Wolverine Coal Partnership operates the Wolverine Mine, which is approximately 15 miles south of Tumbler Ridge, B.C. The Wolverine Mine is an open pit metallurgical coal mine with a coal processing plant and a rail load-out facility. The mine produces premium hard coking coal. As of December 31, 2014, the Wolverine Mine had approximately 8.8 million metric tonnes of recoverable coal reserves. It is estimated that the current reserves at the Wolverine Mine have a life of 4 years; however, the Walter

16 Canada Group has permits for a number of future mine sites near the Wolverine Mine. If these sites are developed, they are expected to have a life of approximately 10 years. 66. Production at Wolverine was idled in May 2014 in response to low coal prices. The only remaining activities at the Wolverine Mine relate to security, environmental testing and maintenance of on-site facilities, including a tailings pond. In the aftermath of the Mount Polley tailings pond failure, tailings ponds are under heightened scrutiny in B.C. The Walter Canada Group has installed a number of additional monitoring sensors and is watching the tailings pond closely. At this time, additional work on the tailings pond is not necessary because the Wolverine Mine is idle; however, further work on the tailings pond is likely necessary before mining at the Wolverine Mine can be restarted. 67. Idling costs for the Wolverine Mine are estimated to be in excess of $515,000 per month, with some seasonal variation. Idling costs consist of property taxes, expenses related to water and air sampling, reporting to the Ministry of Environment, surveying, geotechnical support and reclamation matters, other environmental monitoring, maintenance of the mining machinery and equipment, maintaining the tailings pond, loss control expenses and labour costs associated with the foregoing. Employment matters at the Wolverine Mine are described in greater detail below. (D) Additional Mine Sites 68. In addition to the three idled mines, the Walter Canada Group owns the right to mine at the following sites in B.C.: Hermann, Mount Spieker, EB, Mink Creek, Hudette, West Brazion, Willow West, Falling Creek, Mink Creek and certain other sites (collectively, the "Potential Future Sites"). At present the only activity in relation to the Potential Future Sites relates to maintaining the company's coal licenses for the Potential Future Sites. Some of the coal resources at the Potential Future Sites are not included in the Walter Canada Group's estimated reserves. (E) Belcourt Saxon Coal Limited Partnership 69. In connection with the Western Acquisition, Walter Energy acquired a 50% interest in the Belcourt Saxon Coal Limited Partnership ("Belcourt Saxon"). Belcourt Saxon owns two multi-deposit coal properties located approximately 40 to 80 miles south of the Wolverine Mine in northeast B.C. The other 50% interest in Belcourt Saxon is owned by Peace River Coal Limited Partnership. The Peace River Coal Limited Partnership is a third party not affiliated with the Walter Group. It is affiliated with Anglo American Exploration (Canada) Ltd. 70. The Walter Canada Group's share of the reserves on these properties comprises approximately 28.5 million metric tonnes of recoverable coal. The joint venture was formed for the future exploration and development of surface coal mines. Costs associated with the joint venture were insignificant for the last four years. No field work has been conducted on the Belcourt Saxon properties recently, other than maintenance of environmental monitoring stations and activities relating to maintaining of Belcourt

17 Saxon's coal licenses. If coal prices rebound, the Belcourt Saxon properties may significantly increase in value. V. THE WALTER CANADA GROUP- EMPLOYEES 71. There are currently 19 active employees employed by the Walter Canada Group and certain other part time employees are engaged on an as needed basis. These employees include the general mine manager, environmental monitoring staff, engineers, geologists, human resources staff and loss control staff. There are 4 loss control staff assigned to each mine site and the remaining staff support all three mines. None of these staff members are covered by a collective agreement. 72. The Walter Canada Group currently cumulatively employs a total of approximately 315 active and inactive employees in Canada, including approximately 280 inactive, unionized employees employed at the Wolverine Mine and certain employees on disability leave. The inactive Wolverine Mine employees currently on temporary layoff pursuant to the terms of a collective agreement, as further explained below. (A) Brule Employees 73. No positions at the Brule Mine are covered by a collective agreement. 74. The Brule Mine was idled in June At the time of idling, there were approximately 200 active employees at Brule. Approximately 150 employees were terminated when the Brule Mine was idled and some additional employees have departed since idling began. There were approximately 40 remaining employees at the Brule Mine who were involved in loading coal onto trucks and certain other maintenance and related work. The majority of the remaining employees were given notice during the week of April 6, 2015, and were terminated on or about May 26, 2015, after all inventory was moved and the necessary steps to idle the remaining equipment were completed. As of the date hereof, these employees have received notice of termination pursuant to the B.C. Employment Standards Act (the "ESA") and, if applicable, additional severance amounts in respect of common law notice entitlements. 75. The only remaining activities at the Brule Mine relate to security services and ongoing environmental testing and monitoring. (B) Willow Creek Employees 76. Some employees at the Willow Creek Mine are represented by a union, namely the Christian Labour Association of Canada ("CLAC"). The CLAC collective agreement expired November 30, 2014, but its terms continue in effect pursuant to the B.C. Labour Relations Code. Key features of the expired CLAC collective agreement include: (a) a deemed termination and extinguishment of recall rights after 12 months on layoff; and

18 (b} employee severance of 1 week per completed year of service to a maximum of 10 weeks. 77. In April 2013, the decision was made to curtail mining production at the Willow Creek Mine in response to declining coal prices. Approximately 250 employees were laid off when mining was curtailed. In respect of these employees: (a) All unionized employees who were laid off received notice of termination and severance pay required under the CLAC collective agreement; and (b) All non-unionized employees who were terminated received notice of termination pursuant to the ESA and, if applicable, additional severance amounts in respect of common law notice entitlements. 78. The reduced operation at the Willow Creek Mine employed approximately 100 employees in both the mine and the processing plant. The Willow Creek Mine was idled in May 2014, although the coal processing plant continued to operate until August and the load-out facility continued to operate until October. Approximately 70 employees were laid off when the mine was idled and the majority of the remaining employees were laid off when the processing plant and load-out facility were idled in August and October of In respect of these employees: (a) All unionized employees who were laid off received notice of termination and severance pay required under the CLAC collective agreement; and (b) All non-unionized employees who were terminated received notice of termination pursuant to the ESA and, if applicable, additional severance amounts in respect of common law notice entitlements. 79. All processing at the Willow Creek Mine was completed in August and all coal loading was completed in early October Since that time the plant has been idled. The only remaining activities at the Willow Creek relate to security, environmental testing and maintenance of on-site facilities. (C) Wolverine Employees 80. Certain positions at the Wolverine Mine are covered by a collective bargaining agreement with the United Steelworkers, Local (the "Steelworkers"), which expired July 31, Key features of the Steelworkers collective agreement include: (a) a deemed termination and extinguishment of recall rights after 24 months on layoff; and (b) employee severance pay of 2 weeks per completed year of service to a maximum of 10 weeks.

19 The terms continued in effect pursuant to the BC Labour Relations Code after July 31, Mining production at the Wolverine Mine was idled in April 2014 in response to low coal prices. Approximately 425 employees were laid off when the mine was idled; 300 of those employees were unionized. In respect of these employees: (a) All non-unionized employees who were terminated received notice of termination pursuant to the ESA and, if applicable, additional severance amounts in respect of common law notice entitlements; and (b) Any unionized employees who have not been recalled retain recall rights until April 2016 when the temporary layoff automatically becomes a termination of employment pursuant to the terms of the Steelworkers collective agreement outlined above. 83. The only remaining activities at the Wolverine Mine relate to security,.environmental testing and maintenance of on-site facilities, including a tailings pond. (D) Existing and Potential Employee and Union Matters 84. The Walter Canada Group is aware of certain current and potential employee and union related matters. The most significant of these relate to the Wolverine Mine. In particular, there is a potential liability that could be as high as $11.3 million relating to unionized employee severance costs that may allegedly arise if the unionized employees at the Wolverine Mine are not recalled to work prior to April 2016, on the date that their employment is deemed to be terminated under the Steelworkers collective agreement. There are a number of other claims that have been raised in respect of the Wolverine Mine employees, including certain claims relating to the Northern Living Allowance and certain claims related to the notice provisions under s. 54 of the B.C. Labour Relations Code that are currently subject to an application for judicial review. VI. THE REAL PROPERTY AND ENVIRONMENTAL AND REGULATORY MATTERS 85. The Walter Canada Group's operations are subject to environmental assessment under the B.C. Environmental Assessment Act and its predecessor legislation, the Mine Development Assessment Act. Each mine was issued an environmental assessment certificate that sets out the criteria for designing and constructing the project, along with a schedule of commitments the Walter Canada Group has made to address concerns raised through the environmental assessment process. If, for any reason, the Walter Canada Group's operations are not conducted in accordance with the environmental assessment certificate, the Walter Canada Group's operations may be temporarily suspended until such time as its operations are brought back into compliance.

20 Any significant changes to the Walter Canada Group's current operations or further development of its properties in B.C. may trigger a federal or provincial environmental assessment or both. 87. Each of the Walter Canada Group's mining sites were inspected by the British Columbia Ministry of Energy and Mines in September The Ministry was satisfied with the conditions at the mines. 88. Pursuant to the Mines Act, 1996, c. 293 (the "Mines Acf'), the Walter Canada Group's operations require permits outlining the details of the work at each mine and a program for the conservation of cultural heritage resources and for the protection and reclamation of the land and watercourses affected by the mine. The Chief Inspector of Mines may issue a permit with conditions, including requiring that the owner, agent, manager or permittee give security in an amount and form specified by the Chief Inspector for mine reclamation and to provide for the protection of watercourses and cultural heritage resources affected by the mine. The reclamation security may be applied towards mine closure or reclamation costs and other miscellaneous obligations if permit conditions are not met. Detailed reclamation and closure requirements are contained in the Health, Safety and Reclamation Code for Mines in British Columbia (the "Mine Cade") established under Mines Act. 89. Under the Mines Act and the Mine Code, the Walter Canada Group has filed mine plans and reclamation programs for each of its operations. The Walter Canada Group accrues for reclamation costs to be incurred related to the operation and eventual closure of its mines once they have reached the end of their life. Additionally, under the terms of each mine permit, the Walter Canada Group is required to submit an updated mine plan every five years. The Walter Canada Group submitted updated five-year mine plans for Wolverine Mine and Brule Mine in Estimates of the Walter Canada Group's total reclamation liabilities are based on permit requirements and its experience with similar activities. As of October 31, 2015, the Walter Canada Group accrued US$57.4 million in respect of its asset retirement obligations for all of the Walter Canada Group's mining operations until the end of the lives of each mine using a net present value calculation. The calculation incorporated estimates of all reclamation costs on the basis that the mines would be in continuous operation until the end of the life of each mine. A separate reclamation estimate was prepared by a third party environmental consultant for the Brule and Wolverine Mines, as a component of the fiveyear mine plans, on the assumption that the reclamation of the now idled mine sites would occur in the near term (rather than at the end of the life of each mine). On this basis, the environmental consultant has estimated reclamation obligations at approximately $12-14 million per mine. Assuming that Willow Creek reclamation costs are in the same range as the other mines, the total reclamation costs are estimated to be $36-42 million. These reclamation obligation estimates are based upon the five year mine plans that have not yet been approved by the Ministry of Energy and Mines.